Forex trading is a form of commodity trading. In the commodity market traders buy and sell assets like oil or gold in exchange for currencies. In the forex (currency trading) market the assets bought and sold are currencies themselves. As a result, unlike in the commodity, each currency’s value is determined relative to another. For example, when the currency trader buys an ounce of gold, he must pay for it with the US dollar, which creates a quote in which the price of the metal is defined in terms of a currency which is another asset class. But when the forex trader buys or sells the Euro, he must pay for it with another currency (Australian dollar, Swiss Franc, etc) in which case the quote created has the same asset class on both sides. The result of this is that it is impossible to speak of absolute value in the forex market

Of course, we can’t trade currencies without knowing about them. There are a large number of currencies that traders can choose from for establishing their trades and portfolios, but most currency traders will concentrate on a few of the more widely traded, and liquid pairs such as the EUR/USD, GBP/JPY, or USD/CHF, which are all currencies of major powers. It is possible to divide currencies into many different groups based on the criteria chosen, but in general currency account position and interest rate policies of central banks are the most important values for classifying them.

After examining the basic concepts, let’s briefly discuss how a trade is opened, and look at a few basic ways of controlling risk and managing our funds.

A market order instructs the broker to buy or sell a currency at the current market price. As such, neither the trader, nor the broker has any control over where the trade is executed.

By contrast, a limit order instructs the broker to execute a trade only when a particular price value is reached. No action will be taken until the price quote is reached, regardless of the length of time.

The stop-loss order is a kind of safety mechanism that puts a ceiling over the losses that a misplaced trade can cause.

The trailing-stop order is a relatively uncommon order type. In this case, the stop-loss order is renewed automatically by the trading software at intervals specified by the trader.